New York Markets After Hours

Euro-zone trade with Russia falls sharply

PaulHannon

The euro zone's surplus in its trade in goods with the rest of the world rose in May compared with the same month last year, as exports rose.

However, figures released by the European Union's statistics office Wednesday also showed that trade with Russia continued to decline sharply following the Kremlin's takeover of Ukraine's Crimea peninsula in March.

Eurostat said the euro zone's trade surplus rose to 15.4 billion euros ($20.9 billion) from EUR14.6 million in May 2013. On a seasonally adjusted basis, exports rose by 0.6% from April, while imports rose by 0.5%, the first increases since February.

The pickup in exports is positive news for the euro-zone economy, which has relied heavily on trade to drive its modest recovery. With high unemployment, low wages growth and government austerity programs still keeping domestic demand anemic, many businesses have had to look outside the currency area for growth.

The pickup in flows during April came despite a continued sharp decline in exports to and imports from Russia, a major trading partner for a number of euro-zone members.

Eurostat said that for the four months to April--the most recent month for which figures are available--exports to Russia were down 13% on the same period of 2013, while imports from Russia were down 9%, the result being a slight decline in Russia's trade surplus with the euro zone.

That decline in trade doesn't seem to be entirely due to tensions between the EU and Russia over Crimea and eastern Ukraine, since it began before those strains became apparent and well before the EU placed sanctions on some Russian individuals and businesses.

Instead, the decline in exports is largely due to the sharp slowing of the Russian economy in 2013 and through early 2014, while the decline in imports from Russia reflects an unusually mild start to the year across the currency area, which has reduced demand for natural gas and other energy supplies.

For some euro-zone members, the decline in trade flows with Russia is potentially damaging. Germany's government warned Thursday that its economic growth rate slowed in the second quarter because of the Ukraine-Russia conflict.

The pickup in euro-zone exports during May appears too modest to suggest that economic growth is likely to accelerate markedly during the second quarter. Figures released by Eurostat Monday recorded a sharp decline in industrial production during the same month, while retail sales were flat.

The euro zone's economy has struggled to grow in the years since the 2008 financial crisis, and in particular has lagged other parts of the world economy since its interlinked government debt and banking crises erupted in late 2009.

But with the worst of those crises appearing to have passed last year, policy makers had hoped for a gradual acceleration in the rate of growth as 2014 advanced. Instead, the first quarter marked a slowdown from the final three months of 2013, and hopes for a significant rebound in the second quarter are fading.

The European Central Bank responded to weakening growth prospects and too low inflation by announcing a package of measures on June 5 that included interest rate cuts and cheap, medium-term funding for banks that is intended to be passed on to businesses.

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